Is insurance a scam?

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I understand that insurance makes sense - you pay $1000/year and all your assets (potentially worth 100,000s of dollars) are protected. But the whole business model depends on most people never needing to make a claim. Could you not argue that instead of paying an insurance company the vast majority of people are better off putting that money aside in a savings account or something. Of course there will be a couple of people who are totally screwed over when they can't repair their house - but most people end up better off without insurance

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I understand that insurance makes sense - you pay $1000/year and all your assets (potentially worth 100,000s of dollars) are protected. But the whole business model depends on most people never needing to make a claim. Could you not argue that instead of paying an insurance company the vast majority of people are better off putting that money aside in a savings account or something. Of course there will be a couple of people who are totally screwed over when they can't repair their house - but most people end up better off without insurance

Insurance is a zero sum game. Insurance policies will always be tilted in favour of the insurer because they look to make a profit, which is only natural because they are offering the service of assuming your risk and then paying out based on that risk.

It’s pretty much a commercialized of hedging. Big financial services companies actually sell each other insurance all the time in the form of interest rate swaps so that their risk positions end up neutral.

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When you live in a high crime country, insurance is a lifesaver. We had our burgled so many times and if it wasn't for insurance we wouldn't have been able to keep replacing stuphph lol. Premiums do go up as a result but it has been worth it. Also, in terms of fixing the house when we've had bad weather, that is also a plus. One time the damage was extremely bad and would have cost thousands of rands, but the insurance covered it and we were able to give the house a facelift too.

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Insurance is a zero sum game. Insurance policies will always be tilted in favour of the insurer because they look to make a profit, which is only natural because they are offering the service of assuming your risk and then paying out based on that risk.

It’s pretty much a commercialized of hedging. Big financial services companies actually sell each other insurance all the time in the form of interest rate swaps so that their risk positions end up neutral.

How do they end up making money lol, because when they aren't being paid by the swap they'll end up paying out

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When you live in a high crime country, insurance is a lifesaver. We had our burgled so many times and if it wasn't for insurance we wouldn't have been able to keep replacing stuphph lol. Premiums do go up as a result but it has been worth it. Also, in terms of fixing the house when we've had bad weather, that is also a plus. One time the damage was extremely bad and would have cost thousands of rands, but the insurance covered it and we were able to give the house a facelift too.

but don't they raise the insurance because your house is more likely to be hit? or your car has been involved in an accident (not your fault) but still, they raise the rates because they assume that the person will be involved in the same incidents.

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How do they end up making money lol, because when they aren't being paid by the swap they'll end up paying out

Swaps exist in many forms. Interest rate swaps are usually what banks use to hedge interest rate risk.

Basically a bank can use interest rate swaps to substitute fixed rates for floating ones, or vice versa. Why would a bank do this? Because yields determine duration, and yields are affected by interest rates, so in order to achieve a duration that is better suited to the banks needs they'll use interest rate swaps.

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but don't they raise the insurance because your house is more likely to be hit? or your car has been involved in an accident (not your fault) but still, they raise the rates because they assume that the person will be involved in the same incidents.

Like I said, premiums go up, but depending on who you are with, it is not always a huge increase. Car accidents honestly have a lower chance of happening compared to house break-ins lol. Also, you can choose whether or not you want to claim from your insurance or not.